Upbeat on ’22, wary of ’23 risks


THE Singapore-based ASEAN+3 Macroeconomic Research Office (AMRO) has raised its growth forecast for the Philippines’s GDP growth on account of its better-than-expected performance in 2022, but high inflation and other risks could undermine its growth next year.

In a briefing on Tuesday, AMRO said based on its Quarterly Update of the ASEAN+3 Regional Economic Outlook (AREO), the Philippines is now expected to post a growth of 7.3 percent in 2022, higher than the October 2022 forecast of 6.9 percent.

However, headwinds expected for 2023 have prompted AMRO to slighly downgrade its GDP forecast for the country to 6.2 percent from the initial estimate of 6.3 percent.

“This is still a very strong growth rate…The only [concern is that] inflation is relatively high. But that’s because, unlike some of the countries, the Philippines doesn’t have any price subsidies to contain inflation. So there’s a straight path through from commodity prices, high food prices, [and] inflation.”-AMRO Chief Economist, Hoe Ee Khor

“This is still a very strong growth rate,” AMRO Chief Economist, Hoe Ee Khor said in a briefing. “The only [concern is that]inflation is relatively high. But that’s because, unlike some of the countries, the Philippines doesn’t have any price subsidies to contain inflation. So there’s a straight path through from commodity prices, high food prices, [and] inflation.”

Based on the report, AMRO raised its inflation expectation for the Philippines in 2022 and 2023. For 2022, AMRO expects inflation to average 5.8 percent, higher than the initial 5.1 percent estimate.

For 2023, AMRO projects that the country’s inflation will average 4.3 percent. This is also higher than the 4 percent estimated by the institution in October 2022.

Nonetheless, Khor said the Bangko Sentral ng Pilipinas (BSP) has been proactive in its efforts to fight inflation. He noted that this was the right thing to do.

The BSP has been raising interest rates in step with the US Federal Reserve since last year and there are plans to cut the reserve requirement ratio (RRR).

BSP Governor Felipe M. Medalla earlier said the “likelihood” of the RRR cut happening before the end of June is “quite high.” (full story here: https://businessmirror.com.ph/2023/01/13/bsp-cut-in-rrr-before-end-june-very-likely/)

“Our recommendation has been that once the economy is recovering very strongly, momentum and growth is entrenched, then the central bank should focus on inflation and that is what it’s doing,” Khor said.

Forecast for region

On Tuesday, AMRO revised downwards its short-term growth forecast for the ASEAN+3 region. Deteriorating global economic conditions are weighing on the region’s outlook, but China’s reopening last December should provide some counterbalance.

In its January Update, AMRO estimates ASEAN+3 growth for 2022 to come in at 3.3 percent—down from the 3.7 percent growth forecast in October.

This is due mainly to continuing weakness in Plus-3 economies, especially China, where growth has turned out to be much weaker. Growth in the ASEAN region, buoyed by strong domestic demand, is revised upwards to 5.6 percent.

This year, growth in the ASEAN+3 region is projected to strengthen to 4.3 percent, as China’s economy is expected to rebound strongly, reflecting the removal of containment measures and reopening of its economy. Inflation is anticipated to come down to 4.5 percent in 2023 from the projected 6.3 percent spike last year.

The weakening global environment has taken the wind out of the sails of the region’s external trade momentum. The drag on economic activity from aggressive monetary policy tightening in the United States and euro area will be felt more fully this year, translating to softer export orders for the ASEAN+3.

However, the ongoing resumption of tourism—especially with the return of Chinese tourists—will provide a much-needed boost to growth.

“With recession risks still haunting the United States and Europe, China’s economic reopening cannot come at a better time for the region,” Khor said. “China’s stronger economy will provide support for regional activity while the border reopening will boost intra regional tourism.”

Inflation is moderating across ASEAN+3, tempered by sustained policy tightening by central banks and easing global supply chain bottlenecks. Oil prices have reverted to almost pre-pandemic levels reflecting weaker global demand.

Prices of key agricultural commodities—although remaining relatively high due to the prolonged war in Ukraine—have fallen from their peaks in 2022.

Image credits: Nonoy Lacza